Winning the War Against Inventory Fluff

September 15, 2006 | Stephen G. Martin

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Nothing is more frustrating for DC managers than seeing unused, dust-covered pallets wasting away in a prime picking zone.

Those 10,000 talking Pee Wee Herman dolls your buying department purchased a decade ago, for example, take up valuable space. Being greeted by Pee Wee every morning for the past 10 years is a reminder that proper storage slotting is essential.

Here are some strategies to consider for maintaining a lean storage profile in your DC operation.

Eliminate the Cause

Work with your organization's buyers regularly and strengthen communication—make them partners in the inventory storage process. Have buyers visit the DC at least once each quarter and show them the wasted space devoted to unused products. Buyers often better understand the process after seeing the raw storage space their items require.

Another effective trick is to do a quick study on the buyers' behalf. (They are often too busy ordering the next "hot" item to look back on previous purchasing decisions.) Run a report on how many Pee Wee units were sold during a three-month peak season, and extrapolate that across all the units stored in the DC.

Present buyers with a line graph showing the number of units and the years of inventory those units represent. Use decades or even centuries if years don't cut it! Then, forecast how many future generations of Pee Wee enthusiasts you'll need to serve.

Add captions to the graph highlighting compelling factors about how the products will hold up over time.

One DC, for example, was saddled with an overzealous buyer's "best-selling" books. The DC manager demonstrated that the paper would have decayed in 85 percent of the books before they shipped, based on current order trends. This caught the buyer's attention.

Smart Slotting

Classically trained DC managers have been taught to focus on reducing travel time for pickers when slotting inventory. But some key considerations are absent in this philosophy.

DC managers typically have insufficient open slots to profile product the way they desire—more than 60 percent of DCs were operating at greater than 95 percent capacity during their three busiest months, according to a 2005 industry survey. Instead, managers choose the best available open slots.

At their peril, few warehouses have proactive reslotting programs that continually shuffle pick locations. Sales constantly change and your facility has to be a living, breathing reflection of that fact. The less open space you have, the more critical it is to achieve. Reslot inventory in the off-peak season if you don't have time for a regular reslotting routine.

Strategies that Work

One company, for example, freed up several hundred active carton pick slots by keeping one unit in each bin, and palletizing dead carton stock mixed onto bulk pallets in remote locations. The labor to potentially break the pallet for future picks—which may never happen—was more than offset by gaining valuable prime picking slots.

Many warehouses use product velocity codes—a value of the inventory turn, or cube and turn of a product—but few have location velocity codes or zones. To keep it simple, DC managers should assign location velocity codes within prime picking areas such as the first rack in the shipping zone, away from dead storage areas such as a mezzanine overhead location.

But that's not the only element to consider when assigning slots. Basic rules such as utilizing prime pick areas—fondly called golden zones—with high-volume picks, and placing rarely ordered products deep within your storage dungeon are basic rules of engagement on the war against inventory fluff.

Many operations slot inventory based on "cubic velocity." The concept is sound and works well for some warehouses.

Using the dimensions of each SKU—length, width, and height—establish a product's cube, and multiply that result by a "pick velocity" factor, or the number of trips a picker makes to a product's location. Cubic velocity may differ from sales volumes if you bulk pick or run multiple waves. Just use sales numbers if you want to keep it simple.

The next step is to sort SKUs and assign them to location velocity codes. Don't forget about clustering products that are ordered together—keep Pee Wee and his Playhouse mates close by.

Don't Forget Handling

The most common factor omitted in slotting strategies is material handling—too many companies forget to evaluate downstream handling. Companies often store heavy, dense products next to light, crushable products with comparable product velocity codes. The result? DC workers have to lift and move heavy products multiple times before orders can be shipped.

Workers have to rehandle heavy products to build symmetrical, stable pallets that protect fragile products from being crushed. The solution to this challenge is inspired by, of all things, the Jolly Green Giant.

Case-picking operations performing pallet picks should build a theoretical Jolly Green Giant pallet—a giant pallet with every SKU in the distribution center that does not have to be re-handled before shipping.

Assign SKUs within zones based on this theoretical pallet build. Heavy items go in primary pick locations, lowest to the ground. Though this setup might increase travel time, it offsets that by reducing handling during labeling, quality control, packing, and shipping.

Finding the right balance between location maintenance, material handling, and optimizing cube is a fine line. Integrate slotting as part of your weekly goals and you will be amazed at the productivity gains you can accomplish each month.